Chapter Ten. Pricing: Understanding and Capturing Customer Value. i t s good and good for you 10-1

Transcription

1 i t s good and good for you Chapter Ten Pricing: Understanding and Capturing Customer Value 10-1

2 Pricing: Understanding and Capturing Customer Value Topic Outline What Is a Price? Major Pricing Strategies Other Internal and External Considerations Affecting Price Decisions 10-2

3 What Is a Price? Price is the amount of money charged for a product or service. It is the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service. 10-3

4 What Is a Price? Price is the only element in the marketing mix that produces revenue; all other elements represent costs 10-4

5 Customer Value-Based Pricing Understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value 10-5

6 Customer Value-Based Pricing 10-6

7 Customer Value-Based Pricing Value-based pricing uses the buyers perceptions of value, not the sellers cost, as the key to pricing. Price is considered before the marketing program is set. Value-based pricing is customer driven Cost-based pricing is product driven 10-7

8 Customer Value-Based Pricing 10-8

9 Customer Value-Based Pricing Good-value pricing offers the right combination of quality and good service at a fair price 10-9

10 Customer Value-Based Pricing Everyday low pricing (EDLP) charging a constant everyday low price with few or no temporary price discounts 10-10

11 Customer Value-Based Pricing High-low pricing charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items 10-11

12 Customer Value-Based Pricing Value-added pricing attaches value-added features and services to differentiate offers, support higher prices, and build pricing power 10-12

13 Cost-Based Pricing Cost-based pricing setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk 10-13

14 Cost-Based Pricing Cost-based pricing adds a standard markup to the cost of the product 10-14

15 Cost-Based Pricing Types of costs 10-15

16 Cost-Based Pricing Fixed costs are the costs that do not vary with production or sales level Rent Heat Interest Executive salaries 10-16

17 Cost-Based Pricing Variable costs are the costs that vary with the level of production Packaging Raw materials 10-17

18 Cost-Based Pricing Total costs are the sum of the fixed and variable costs for any given level of production 10-18

19 Costs as a Function of Production Experience 10-19

20 Costs as a Function of Production Experience Experience or learning curve is when average cost falls as production increases because fixed costs are spread over more units 10-20

21 Cost-Plus Pricing Cost-plus pricing adds a standard markup to the cost of the product Benefits Sellers are certain about costs Prices are similar in industry and price competition is minimized Buyers feel it is fair Disadvantages Ignores demand and competitor prices 10-21

22 Break-Even Analysis and Target Profit Pricing Break-even pricing is the price at which total costs are equal to total revenue and there is no profit Target profit pricing is the price at which the firm will break even or make the profit it s seeking 10-22

23 Break-Even Analysis and Target Profit Pricing 10-23

24 Competition-based pricing Setting prices based on competitors strategies, costs, prices, and market offerings. Consumers will base their judgments of a product s value on the prices that competitors charge for similar products

25 Considerations in Setting Price 10-25

26 Other Internal and External Considerations Affecting Price Decisions Target costing starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that the price is met 10-26

27 Other Internal and External Considerations Affecting Price Decisions Organizational considerations include: Who should set the price Who can influence the prices 10-27

28 Other Internal and External Considerations Affecting Price Decisions The Market and Demand Before setting prices, the marketer must understand the relationship between price and demand for its products 10-28

29 Other Internal and External Consideration Affecting Price Decisions Competition 10-29

30 Other Internal and External Considerations Affecting Price Decisions The demand curve shows the number of units the market will buy in a given period at different prices Normally, demand and price are inversely related Higher price = lower demand For prestige (luxury) goods, higher price can equal higher demand when consumers perceive higher prices as higher quality 10-30

31 Other Internal and External Considerations Affecting Price Decisions 10-31

32 Other Internal and External Considerations Affecting Price Decisions Price elasticity of demand illustrates the response of demand to a change in price Inelastic demand occurs when demand hardly changes when there is a small change in price Elastic demand occurs when demand changes greatly for a small change in price 10-32

33 Other Internal and External Considerations Affecting Price Decisions Price elasticity of demand = % change in quantity demand % change in price 10-33

34 Other Internal and External Consideration Affecting Price Decisions 10-34